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BHP to sell oil, gas arm to Australia's Woodside in $28 bln merger

MELBOURNE, Aug 17 (Reuters) - BHP Group has agreed to sell its petroleum business to Woodside Petroleum in a merger to create a top 10 independent oil and gas company worth A$38.5 billion ($28 billion) with growth assets in Australia and the Americas.

BHP’s exit from petroleum, which made up just 5% of its annual earnings, speeds up its exit from fossil fuels amid pressure from environmentally conscious investors. BHP CEO Mike Henry, however, said the company remained committed to metallurgical coal used in steel making.

BHP shareholders will be paid in Woodside stock, giving BHP investors a 48% stake in the merged group.

That effectively values BHP’s petroleum arm at about A$18.5 billion ($13 billion) on Tuesday’s close, roughly in the middle of analysts’ valuations between $10 billion and $17 billion.

For Woodside, the deal is transformational, doubling its output, expanding its footprint in liquefied natural gas, removing the main obstacle to its $12 billion Scarborough gas project and giving it near-term growth options in the Gulf of Mexico.

“Merging Woodside with BHP’s oil and gas business delivers a stronger balance sheet, increased cash flow and enduring financial strength to fund planned developments in the near term an new energy sources into the future,” Woodside Chief Executive Meg O’Neill said in a statement.

She told investors the merger involved no premium for BHP’s assets.

The deal was announced at the same time as Woodside appointed O’Neill as chief executive, following a stint as acting CEO. Some analysts had speculated BHP’s petroleum chief Geraldine Slattery, would get the job.

“The proposed transaction de-risks and supports Scarborough FID (final investment decision) later this year and enables more flexible capital allocation,” O’Neill said.

The companies said the merger would generate annual savings of $400 million.

($1 = 1.3732 Australian dollars)

Reporting by Sonali Paul; editing by David Evans

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